UPDATE 2-Fresnillo cuts capex as profit falls short; shares tumble

Precious metals miner Fresnillo said it would cut capital investments and costs this year after its core profit almost halved in the first six months, sending its shares to a three-year low on Tuesday. Core earnings fell 46% to $308 million, well short of a company-compiled consensus estimate of $335 million, hit by rising costs and lower output at its mines in Mexico.

The company has repeatedly warned of a troubled 2019 and earlier this month trimmed its output forecast, blaming lower- quality ore and construction delays. "Continued challenges at our Fresnillo, Saucito and Herradura mines, combined with higher costs, have impacted profitability for the period," Chief Executive Officer Octavio Alvídrez said in a statement.

Shares in Fresnillo were down 13 percent to 693.4 pence by 1041 GMT, their lowest point since February 2016, and were the second-biggest decliners in the FTSE 100. Silver production fell 10.4% to 27.6 million ounces in the first half, while gold production fell 7.1%. Fresnillo's cost of sales rose 30% to $796 million.

Fresnillo, Mexico's largest gold producer, said it would put in place a cost-control program in the second half of the year and delay renewals of equipment and infrastructure. Alvídrez said that, for example, the start of a large pumping station at the company's legacy Fresnillo mine could be put off until next year without any impact.

Fresnillo maintained its full-year production outlook but forecast annual capital expenditure of $655 million, below its previous plan of $710 million. It expects 2019 gold production of 880,000-910,000 ounces, down from 922,527 ounces in 2018, and silver production of 55-58 million ounces, down from 61.8 million ounces.

"We do have some lower investments in Fresnillo, in Ciénega and San Julián as well, and a then smaller reduction in capex in Noche Buena and also in Herradura," Alvídrez said. For next year, Fresnillo also expects lower production, as it expects challenges in its legacy mine to continue.

The miner said it was taking measures to improve its Fresnillo and the flagship Saucito mines and that it would take about 18 months to stabilize them. Last year, Fresnillo cut its outlook for silver production twice.

Also Read: Fresnillo half-year profit tumbles on lower production, costs